Tech giants defy economic downturns, report a combined profit of $28 bn

Though the tech industry's four biggest companies were stung by a slowdown in spending, they reported a combined profit of $28 billion

A day after lawmakers grilled the chief executives of the biggest tech companies about their size and power, Amazon, Apple, Alphabet and Facebook reported surprisingly healthy quarterly financial results, defying one of the worst economic downturns on record.

Even though the companies felt some sting from the spending slowdown, they demonstrated, as critics have argued, that they are operating on a different playing field from the rest of the economy.

Amazon’s sales were up 40 per cent from a year ago and its profit doubled. Facebook’s profit jumped 98 per cent. Even though the pandemic shuttered many of its stores, Apple increased sales of all its products in every part of the world and posted $11.25 billion in profit. Advertising revenue dropped for Alphabet, the laggard of the bunch, but it still did better than Wall Street had expected.

“The strong continue to get stronger,” said Dan Ives, MD of equity research at Wedbush Securities. “As many companies are falling by the wayside, the tech stalwarts continue to gain muscle and power in this environment.”

The tech companies’ financial performance was a remarkable contrast to the overall health of the US economy. The Commerce Department said on Thursday that the country’s GDP fell 9.5 per cent in the second quarter of the year as consumers cut back spending. It was the steepest drop on record. Combined, the companies reported $28.6 billion in quarterly net profit, underscoring how regulatory scrutiny remains more background noise and a distraction for them rather than an imminent threat to their businesses. On Wednesday, a congressional antitrust panel questioned the companies’ leaders — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet — about their market power and business practices.

Apple, Amazon, Facebook, and Google parent company Alphabet, all beat expectations in their quarterly earnings. The results show how their businesses are holding up in the throes of the Covid-19 pandemic

 

The spectacle of the chief executives of the four companies, worth nearly $5 trillion by market capitalisation combined, appearing before a House subcommittee was historic. But antitrust investigations often take years, especially if regulators seek more drastic measures like breaking up companies. The pandemic has reinforced the advantages held by the big tech companies. As consumers stay home, demand for Amazon’s shopping site surged, while companies are turning to its cloud computing products to keep their services up and running. 

“Our products and services are very relevant to our customers’ lives, and in some cases, even more during the pandemic than ever before,” Luca Maestri, Apple’s finance chief, said in an interview. He noted, however, that Apple could have made several billion dollars more if not for the pandemic. Facebook shrugged off a spending slowdown, hailing record levels of engagement with its products.

Alphabet said revenue from Google search ads fell 10 per cent — pushing the company’s overall revenue lower for the first time in the company’s history — but that still was better than rivals. Last week, Microsoft reported an 18 per cent slide in search advertising revenue. Since the beginning of March, the companies’ stock prices have risen by an average of 35 percent, compared with a 10 percent rise in the S&P500.

Amazon: Buoyed by a pandemic-induced surge in online shopping, Amazon had $88.9 billion in quarterly sales, up 40 per cent from a year earlier. Profit doubled, to $5.2 billion, even though the company invested in expanding warehouses and other ways to increase capacity. 
 

In April, Bezos told investors to expect no operating profit, and maybe even a loss, as the company planned to spend about $4 billion on coronavirus-related expenses like temporary pay increases, declines in warehouse efficiency because of social distancing, and $300 million for testing its work force for the virus.

But even those costs did not compare to the immense surge in demand, with online retail sales up 48 percent.

On a call with reporters, Amazon declined to say if it would give its warehouse workers virus-related bonuses or raises in the current quarter, but added that pandemic-related expenses would fall to $2 billion in the quarter. Sales at Amazon’s lucrative cloud computing business grew 29 per cent, to $10.8 billion, falling short of analyst expectations, though it was more profitable than they had expected.

Facebook: Facebook’s revenue for the second quarter rose 11 per cent from a year earlier to $18.7 billion, while profits jumped 98 percent to $5.2 billion. The results were well above analysts’ estimates of $17.3 billion in revenue with a profit of $3.9 billion, according to data provided by FactSet.

Despite increasing scrutiny from regulators, questions about its role in subverting elections and how people use the platform to spread misinformation, neither users nor advertisers have shown an inclination to stop using Facebook.

More than three billion people now regularly come to Facebook or one of its family of apps, as the services have overtaken much of the developed world. And some 2.47 billion people use one or more of Facebook’s apps every day. The company said its number of monthly active users rose 12 per cent from a year ago and added that it was seeing record levels of engagement and usage this year.

Apple: Despite the global economic slowdown, people kept buying Apple devices en masse and paid the tech giant billions of dollars more for apps and services on those gadgets. Apple said its sales rose 11 per cent to $59.7 billion and its profits increased 12 percent to $11.25 billion. 

Both figures handily beat analysts’ expectations, with Wall Street having forecast declines in both areas. Sales were particularly strong for iPads and Mac computers. Revenue also surged in its internet-services business, which include Apple’s cut of sales from the App Store, the subject of antitrust investigations in the US and Europe.

Even the iPhone, which remains the company’s biggest seller, had a slight increase in sales for only the second time in the past seven quarters. Apple also announced a stock split on Thursday that would quadruple its number of shares, allowing people to buy a share in the company for a quarter of the current stock price, which closed at $384.76 on Thursday.

Alphabet: Google’s parent company, Alphabet, reported its first-ever decline in quarterly revenue, hurt by a slowdown in spending by advertisers. The company posted revenue of $38.3 billion and a profit of $6.96 billion — significantly higher than what Wall Street analysts had predicted.

Ruth Porat, Alphabet’s CFO, said advertising revenue “gradually improved” as the quarter went on. The decline came largely from lower sales of advertisements that run alongside Google’s search results, but the company’s efforts to diversify its business paid off as revenue from YouTube ads and its cloud computing business grew. When asked in a call with financial analysts about the congressional hearing, Pichai said the company would have to learn to live with the investigations. 

© The New York Times News Service 2020